SUPPORTS ITEM NO. 5
CS&B COMMITTEE AGENDA
NOVEMBER 7, 1996
ADMINISTRATIVE REPORT
Date: October 23, 1996
TO: Standing Committee on City Services and Budgets
FROM: Director of Finance
SUBJECT: 1996 Operating Budget - September Review
RECOMMENDATION
A. THAT the proposed adjustments to the 1996 Operating Budget
revenue and expenditure appropriations as outlined in this
report be approved.
B. THAT any shortfall in the 1996 Operating Budget at the end
of the year be funded first from the Capital Reserve,
including any deficiencies in the Park Board revenue
programs as contemplated in the Global Budget agreement.
GENERAL MANAGER'S COMMENT
The General Manager of Corporate Services RECOMMENDS approval of
A and B.
COUNCIL POLICY
Council's standing instructions require that the Director of Finance
report on the status of the Operating Budget as of June 30 and
September 30 each year, along with recommendations for any appropriate
adjustments.
Council must approve transfers to and from reserve accounts.
Under provisions of the Park Board global budget, Council has
authorized the Director of Finance to maintain a notional Revenue
Stabilization Account to balance the annual surpluses or deficits that
result from seasonal or weather-related factors affecting the revenue
programs.
PURPOSE
In accordance with Council's standing instructions, this report
reviews the status of the revenue and expenditure appropria-tions in
the 1996 Operating Budget at September 30, 1996 and seeks Council
approval to make adjustments that reflect our revised expectations.
DISCUSSION
September Budget Review includes detailed reviews of both the revenue
and expenditure appropriations in the Operating Budget.
The review of revenue appropriations seeks to identify areas of
significant variance that could impact on the budget position at year
end. Council will note that the proposed adjustments address issues
that are generally external in nature or have arisen as a result of
experience or new information since the budget was approved in April.
The adjustments to the revenue appropriations are problematic in that
they will not only impact the 1996 budget, but will also have to be
accommodated in the 1997 Operating Budget. This situation is
compounded by the fact that our only recourse in 1996 is to utilize
one-time funding from sources which cannot be sustained beyond this
year. This means that in 1997, these revenue budget reductions will
have to be offset by other means.
The expenditure side of the Operating Budget also requires some
adjustments. While it should be noted that most departments have
managed within the allocations provided by Council in April, there are
some factors beyond the control of the departments that require
funding.
A. Adjustments To Revenues Appropriations
Revenue
Increase/(Decrease)
Receipt-in-lieu of taxes ($1,000,000)
As reported to Council in the June Budget Review report, the 1996
Operating Budget will be impacted by reductions in grants-in-lieu
of taxes that are being proposed by the Port of Vancouver and the
CBC.
The Port of Vancouver has proposed a settlement of its
outstanding grants-in-lieu of taxes for the years 1985 to 1995.
This settlement involves a potential retroactive payment by the
City to the corporation of approximately $2.1 million and an
ongoing annual loss in grant revenue of up to $1.0 million. The
proposed settlement is currently being reviewed by City and BC
Assessment Authority staff prior to discussions taking place with
the Port Corporation. While the outcome of these discussions is
uncertain, it is anticipated that the cost to the City in 1996
will be in the order of $1.0 million.
Council is also aware that the CBC has disputed the BC Assessment
Authority valuation on their regional headquarters building in
Vancouver, and the amount of the grant due to the City. Staff
have had discussions with BCAA and the corporation and hope to
report to Council in the near future on the issue. The Operating
Budget has already been adjusted to account for a portion of this
potential loss in revenue, however, further reductions are
possible.
It is recommended that the budget be adjusted at this time to
provide a reserve for these potential revenue losses.
By-Law Fines - Civilian Parking Enforcement ($500,000)
This adjustment reflects the net impact of fewer tickets being
issued and a higher number of outstanding and unpaid tickets as
compared with expectations earlier in the year. In addition, the
1996 budget anticipated that new revenue generating initiatives,
including introduction of the Interactive Voice Response and
Pre-Collection systems, would be operating earlier in the year
than has proven possible. We are also revising our expectations
for these revenues for the 1997 Operating Budget.
By-Law Fines - Police ($300,000)
The volume of municipal by-law tickets issued by the Police is
lower than in prior years, in part as a result of a change in
operating priorities in the department, and in part because of
legislative changes eliminating the option of a municipal
infraction for moving violations. An adjustment of $300,000 is
required to fund the shortfall.
Sun Life - Additional Premium Refund $337,000
In cases where premium costs on life insurance plans are lower
than actual claim costs, the City receives a refund from our
group insurance carrier, Sun Life. The initial estimate for the
employer's portion of the 1996 refund was $200,000 and this
amount was included in the initial budget estimates. However, the
actual receipt is $537,000 and it is recommended that the excess
of $337,000 be brought into the operating budget.
Regional Dental Plan Pool - Refund $270,000
The City will end its participation in the regional dental plan
pool as of December, 1996 and an accumulated net surplus of
$542,000 will be returned to the City. It is recommended that
the employer's share of this refund be brought into the budget.
Net Decrease in Revenue Accounts ($1,193,000)
B. Adjustment To Expenditures Appropriations
Expenditure
Increase/(Decrease)
Police Department $500,000
The annual budget for Police sworn staff attempts to establish an
adequate provision for salary and benefit costs, taking into
consideration turnover and recruitment. In recognition of the
large number of officers who were recruited in the early 1970s
and the potential for a significant number retirements, the 1997
budget included a higher estimate of turnover savings than would
otherwise have been the case. Those early estimates have proven
to be optimistic and it now appears that the budget will be
overspent.
In response to lower turnover, the department has reduced the
September 1996 new recruit class to offset some of these costs,
however, it is anticipated that the Police salary accounts will
be overspent by up to $500,000.
Engineering - Solid Waste Disposal $130,000
The Corporation of Delta has advised the City that it has
neglected to bill the Vancouver Landfill for sewer utility fees
and as a result this cost has not been included in the City's
1996 budget estimates. The cost of this fee is about $400,000, a
portion of which will be paid from commercial disposals and other
landfill users. The net cost attributable to the Operating
Budget is $130,000.
Queen Elizabeth Theatre $340,000
Since the Operating Budget estimates were developed early in the
year, there have been several cancellations of tentative bookings
at the civic theatres. The Theatres Board has reduced
expenditure estimates where possible, however, there will be a
increase in the net cost to the Operating Budget estimated at
$340,000.
Debt Charges - Library Square Project ($770,000)
As reported to Council, the Library Square Capital Project has
been completed. The net funding shortfall of the project is to
be financed with a loan from the Capital Financing Fund and
repaid through a debt charge provision in the annual operating
budget. It had been anticipated that these charges would begin
in mid-1996, however, due to delays in closing out the accounts,
the shortfall has been financed for most of the year out of the
City's operating reserves and the debt charges will not start
until later in the year. As a result, $770,000 is available for
reallocation to other needs.
Contingency Reserve $490,000
The June Budget Review Report considered by Council on July 30,
1996, indicated that Contingency Reserve had been fully committed
and there were no funds available to provide for further
requests. However, as there was no identifiable funding source
available at that time, and since several of the approved items
would not require funding allocations until later in the year,
adjustment to Contingency Reserve was deferred to September
Budget Review.
It is now proposed that $490,000 be allocated to Contingency
Reserve. This additional allocation has two components. First,
$290,000 is provided to cover the known outstanding items to year
end. In addition, on September 26, 1996, Council approved a 50%
municipal assist on regional development cost charges. If the
regional DCC bylaw is approved before year-end, the City share of
the costs could reach $200,000, which will be provided from
Contingency Reserve.
Net Increase in Expenditures $ 690,000
TOTAL REQUIRED FUNDING $1,883,000
C. Bringing The Budget Back Into Balance
The Director of Finance notes that in past years, we have generally
been able to accommodate mid-year budget adjustments through
unexpected increases in revenues or expenditure savings. However,
these sources are not available in 1996 and the recommended sources of
funding to return the budget to a balanced position should be
considered extra-ordinary. Moreover, they are not sustainable in the
1997 Operating Budget as offsets to structural changes in revenue and
expenditure estimates.
The following sources are recommended to offset the funding shortfall
identified above and to return the Operating Budget to a balanced
position.
Liability Insurance Premium $610,000
The Insurance Reserve currently meets the target level that was
established with the assistance of an actuary when the plan was
established. That balance reflects the accumulated annual
contributions from the Operating Budget, net of our claims
experience and administrative costs.
The City has commissioned an actuarial assessment of the
Insurance Reserve for report to Council in early 1997. The level
of the annual contribution from the budget will be reviewed in
that report. However, as the original target level has been
reached, it is proposed that the 1996 contribution from the
operating budget, after adjusting for the operating costs
associated with the reserve, be returned to the Operating Budget.
Fringe Benefit Reserve $1,273,000
Part of the proceeds of winding down the CUPE LTD Trust were
placed in a reserve which can be used to pay fringe benefit
costs. It is recommended that part of this balance be brought
into the Operating Budget at this time to fund CUPE benefit
costs, with the balance to be utilized in the 1997 budget as
originally planned.
TOTAL SOURCES OF FUNDS $1,883,000
PARK BOARD GLOBAL BUDGET
Review of the Park Board Global Budget, projected to year end,
indicates a balanced position. Under the global budget arrangement,
any shortfalls in the Park Board revenue programs are provided for
from a Revenue Stabilization Fund. Recommendation B deals with the
source for any necessary funding in 1996.
ALLOCATION OF CAPITAL RESERVE FUNDS
When capital projects funded out of the Operating Budget are
completed, variances are funded from or returned to the Capital
Reserve. As it is not City policy to maintain other than nominal
balances in the Capital Reserve, where they arise, these balances are
usually allocated to needed capital projects in subsequent annual
Capital Budgets.
Before the end of 1996, two capital projects with surpluses totalling
$1.9 million will be closed out to the Reserve, as follows:
Collingwood Neighbourhood House Project
Collingwood Neighbourhood House was developed as part of the 1994
- 1996 Capital Plan, with the City contributing $3.825 million to
a child care facility, neighbourhood house and community
gymnasium. The developer (VLC) was responsible for any capital
costs required in addition to the City's contribution. At
completion of the project, it is anticipated there will be a
surplus in the budget of approximately $512,000 which will be
returned to the Capital Reserve.
Commissioner Street Property - Insurance Settlement
As Council is aware, the settlement of the claim on the former
Sterling Shipyard property resulted in a receipt of $1.4 million.
Following through from previous discussions with Council, these
funds can now be credited to the Capital Reserve.
The balances from these projects, together with funds remaining from
the sale of the Oakridge Police Station, will leave the Capital
Reserve with funding estimated at $3.5 million. This balance would
normally be allocated in the 1997 Capital Budget.
However, our review of the Operating Budget at September 30, has
indicated areas where additional funding may be required before year
end and several contingencies that should be provided for. For
example, the budget contains only a minimal amount of funding to deal
with a heavy snowfall before year-end and, in this event, our current
balanced budget could be quickly forced into a deficit position.
Normally, year-end surpluses and deficits in the Operating Budget are
transferred to or taken from Revenue Surplus. However, the balance in
Revenue Surplus is currently at an historically low level ($4 million)
and the Director of Finance does not believe that any further
reductions are appropriate. Accordingly, it is a recommendation of
this report that any negative variances realized at the year-end be
funded first from the Capital Reserve.
Further, in 1997, Council will be asked to provide direction to
address concerns about the current level of Revenue Fund reserves and
how these might be boosted to provide an adequate cushion for the
contingencies which the City faces in the coming years.
1997 OPERATING BUDGET PROJECTIONS
Staff are completing a preliminary review of the 1997 Operating Budget
which indicates that there are likely to be some significant
challenges in meeting Council's taxation objectives in the coming
year. The issue of the structural revenue reductions in
payments-in-lieu of taxes and by-law fines were reported earlier in
this report. In addition, it is projected that there will also be
reductions in short term interest earnings as a result of persistently
lower rates in the financial markets.
As Council is aware, there is also considerable uncertainty about the
status of transfer payments from the Provincial Government. The City
currently received approximately $23.2 million in payments including
unconditional grants, Canada Assistance Plan support and the Police
Equalization grant. Reductions in these payments will clearly be
difficult to fit within the 1997 budget.
Under normal circumstances, the projections would have been brought to
Council during the early fall as the first step in developing the 1997
Operating Budget. This presentation also provides an opportunity for
Council to provide direction on policy issues related to preparation
of the estimates. However, with the uncertainties surrounding the
1997 Operating Budget, this process will be delayed until December
when more information is available. At that time, the new Council
will be able to make the necessary policy decisions to guide the
preparation of the 1997 Budget.
CONCLUSION
A review of the 1996 Operating Budget as of September 30, 1996
indicates that several adjustments are appropriate based on changed
expectations since the budget was approved in April. In summary the
changes are as follows:
Revenue shortfalls $ 1,193,000
Expenditure increases 690,000
Total funding requirements 1,883,000
Funding sources ( 1,883,000)
Net Budget Position 0
With these recommended adjustments, the 1996 Operating Budget will be
remain in balance.
However, even with the balanced position, the Director of Finance
notes that some uncertainty remains in the 1996 budget and departments
are being asked to take particular care to control discretionary
expenditures to year-end.
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